Reassessment, mandatory 143(2) notice, and treaty-based dividend gross-up shaped the tax treatment and credit limits.

Reassessment under section 147 was upheld because the CBDT circular and other material available to the Assessing Officer were sufficient to form the requisite belief, but the assessment for assessment year 1999-2000 was cancelled for want of mandatory notice under section 143(2), which created a jurisdictional defect. On dividend taxation, the India-UK treaty required the dividend to be assessed on a deemed gross basis by adding the tax credit component, with credit allowed only against Indian tax liability. Section 91 was held inapplicable where the treaty governed, and no refund could be claimed merely because the credit exceeded the tax payable.

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Issues: (i) Whether the reassessment proceedings under section 147 were validly initiated on the basis of the CBDT circular and the material available to the Assessing Officer. (ii) Whether the assessment for assessment year 1999-2000 was invalid for want of notice under section 143(2). (iii) Whether dividend received from a UK company was to be taxed on the gross or net basis and whether tax credit under the India-UK treaty was allowable.

Issue (i): Whether the reassessment proceedings under section 147 were validly initiated on the basis of the CBDT circular and the material available to the Assessing Officer.

Analysis: The reopening was based on CBDT Circular No. 369 dated 17.09.1983 dealing with taxation of dividend from UK companies. The circular constituted relevant material for forming the requisite belief under section 147. The earlier jurisdictional decision on a different legal setting and different assessment years did not negate the existence of material for reopening in the present case.

Conclusion: The reassessment proceedings under section 147 were validly initiated and the objection of the assessee failed.

Issue (ii): Whether the assessment for assessment year 1999-2000 was invalid for want of notice under section 143(2).

Analysis: Notice under section 143(2) was treated as mandatory even in reassessment proceedings. Since no such notice was issued before completing the assessment for assessment year 1999-2000, the assessment was held to suffer from a jurisdictional defect.

Conclusion: The assessment for assessment year 1999-2000 was invalid and was cancelled.

Issue (iii): Whether dividend received from a UK company was to be taxed on the gross or net basis and whether tax credit under the India-UK treaty was allowable.

Analysis: For the relevant years governed by the India-UK DTAA, the treaty provisions on dividend taxation and tax credit were applied. The dividend had to be taken on a deemed gross basis by adding the tax credit component, and the corresponding credit was allowable only against Indian tax liability. The assessee could not claim a refund merely because the tax credit exceeded the Indian tax payable. Section 91 was held inapplicable where the treaty operated.

Conclusion: The dividend was to be assessed on the deemed gross basis and tax credit was allowable in accordance with the treaty, but without any refund entitlement beyond set-off.

Final Conclusion: The assessee succeeded on the procedural defect for assessment year 1999-2000, while the reopening for the remaining years was upheld and the dividend income issue was decided by applying the treaty on a deemed gross basis with limited credit relief.

Ratio Decidendi: A reassessment may be founded on relevant material sufficient to form belief under section 147, but completion of assessment under section 143(3) requires mandatory notice under section 143(2); where a tax treaty grants dividend tax credit, the dividend may be brought to tax on the treaty-prescribed grossed-up basis with credit limited to set-off against domestic tax liability.

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